UST yield curves flattened in February as the yields priced in sentiment over the rate hikes by the Fed and the Russia-Ukraine geopolitical tension that escalated into a full-blown military conflict. The longer end of Germany’s bund yields mainly were in positive territory in February as the market braced for the unwinding of accommodative monetary policy. BoE continued its hawkish stance in February which saw a rate hike by 25 bps to 0.5%. The 5yr gilt plunged by 0.2bps as investors sought safe assets following the Russia-Ukraine military conflict. CGB yields rose in February, the first time since October 2021. The market is expecting another monetary policy easing of reserve requirement ratio and loan prime rate in the next few months amid slow growth momentum and zero-COVID policy.

Malaysian Government Bond Market          

Total MGS/GII outstanding grew 11.9% y-o-y to close at RM930.3 billion in February 2022 as no government bonds matured for the third consecutive month. Gross issuance throughout the month came in higher at RM14.5 billion (January 2022: RM12.5 billion), lifted by the GII segment at RM9.5 billion (January 2022: RM3.0 billion). Demand continued to skew towards the longer maturities, as indicated by the strong BTC ratio of 2.4x recorded for the auction of 30y MGS. This is a stark contrast with the sale of 5y and 7y GII which has drawn BTC ratios of merely 1.7x and 1.8x, respectively. The 3y MGS yield dropped the most to settle at 2.71% from 2.84% previously, while yields along the 10y20y curve eased by 1bp to 3bps. Meanwhile, the weak auction results hurt bidding interest for the 5y and 7y MGS, with yields closing 1bp and 7bps higher, respectively.

Malaysian Corporate Bond Market          

Issuance activity remained quiet in February. Total corporate bond issuance came in at RM3.2 billion, lower than the RM4.9 billion recorded in January. There were broad-based declines of issuances in all segments i.e. unrated corporate bonds (February: RM0.6 billion; January: RM1.6 billion), rated corporate bonds (February: RM2.0 billion; January: RM2.2 billion), and Cagamas (February: RM0.6 billion; January: RM1.0 billion).  In February, corporate bonds rated AA and above saw some selling amid safety bids into government bonds. As a result, yields on the AAA- and AA-rated corporate bonds edged higher by 1bp to 6bps across all maturities. 

In February, final ratings of six issues were added into MARC Ratings’ universe. MARC Ratings also announced one preliminary rating of AA-IS to MMC Port Holdings Sdn Bhd's (MMC Port) proposed RM1.0 billion Sukuk Murabahah Programme. MARC Ratings has revised the ratings outlook to negative from stable on it’s A+IS and AIS ratings on Tropicana Corporation Berhad's RM1.5 billion IMTN Programme (Sukuk Wakalah) and RM2.0 billion Perpetual Sukuk Programme (Perpetual Sukuk). MARC Ratings lowered its ratings on Alpha Circle Sdn Bhd's outstanding RM115 million Senior Sukuk Musharakah to BIS /negative from BBIS /negative and RM55 million Junior Sukuk Musharakah to CIS from BIS /negative. In addition, MARC Ratings has withdrawn its financial institution (FI) rating of AAA on the Export-Import Bank of Korea (KEXIM) and its AAA rating on KEXIM's MTN programme of RM1.0 billion. The rating withdrawal on the MTN programme follows its expiry on February 2, 2022.

Foreign Holdings of Local Bonds          

Foreign holdings’ share in MGS/GII diluted to 25.8% (Jan: 26%) amid higher issuance of local govvies and that no government bonds matured for the third consecutive month in February. Foreign holdings of MTB soared to 59.4% (Jan: 48.5%), while MITB dropped to 16.5% (Jan: 17%).  On the other hand, share of foreign holdings in corporate bonds remain stationary at 1.8%. Overall, the total foreign holdings’ share of total outstanding increased slightly to 14.9% (Jan: 14.8%).